BusinessDay 07 Jan 2019

Monday 07 January 2019
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BUSINESS DAY
61
Gainers & Losers: A review of mutual funds in 2018
Analysis
Endurance Okafor &
Oluwasegun Olakoyenikan
A
review of the performance
of mutual
funds between January
and November
2018 showed that
Abacus Money Market Fund,
Nigeria International Debt
Fund and SFS Fixed Income
Fund, rewarded investors with
the most superior returns.
A mutual fund is an investment
vehicle that is made up of
a pool of funds collected from
many investors for the purpose
of investing in securities such
as stocks, bonds, money market
instruments and similar assets.
Mutual funds therefore afford
investors to invest in a portfolio
of different forms securities
which could help mitigate
risks. Investment in mutual
funds could be done with any of
the licensed mutual fund managers
available of NSE website,
of which some are owned by
banks.
BusinessDay did a survey
on seventy-four (74) funds dis-
‘
The fixed-income
asset class is probably
the only one where
smart money
can demonstrate
differential value
at this time.
Positioning by local
portfolio managers
ahead of when hot
money returns after
hopefully peaceful
polls might be one
strategy
’
tributed over six broad portfolio
classes traded on the Security
and Exchange Commission
(SEC). The survey revealed that
majority of the funds suffered
losses while a few others reported
the same unit price as
the year before.
The returns posted by some
of the mutual funds in 2018 reflect
their abilities to withstand
the economic headwinds in the
global market which negatively
impacted emerging economies
including Nigeria.
Abacus Money Market, a
Fund managed by Investment
One Fund Management Limited,
took the lead among money
market funds, posting 9900
percent return in 2018, and its
Net Asset Value, which opened
the year at N4.1 billion, rose to
N8.59 billion. The average return
of the class however stood
at -0.22 percent.
This placed the fund over
thirteen others in the asset class
with unchanged prices, United
Capital Money Market Fund
shed 9.50 percent and Kedari
Investment Fund grew its return
by 6.25 percent.
Rafiq Raji, chief economist
at Macroafricaintel, said asset
management is very difficult in
these parts, and as such advised
that fund managers should look
in direction of fixed-income,
blue-chips stocks, and flowspositioning.
“The fixed-income asset
class is probably the only one
where smart money can demonstrate
differential value at
this time. Positioning by local
portfolio managers ahead of
when hot money returns after
hopefully peaceful polls might
be one strategy,” Raji recommended.
Omotola Abimbola, a research
analyst at Ecobank said
“multi assets or balanced funds
are likely going to continue to
overweight fixed income over
equities.”
He however explained that
“for fixed income, tightening
external financing conditions
and CBN policy tightening will
keep interest rates elevated and
sustain investor apathy for duration.”
Unlike the money market
funds, bond funds recorded an
impressive performance for the
year as the funds in the class
grew their returns. In all, Nigeria
International Debt Fund,
managed by Afrinvest Asset
Management Limited, was the
best performing fund in the category
with 15.20 percent gain.
The fund’s performance was
significant when compared to
Kedari Investment Fund, its
closest rival that grew return by
5.85 percent.
Johnson Chukwu, MD of
Cowry Assets Limited said ordinarily,
any good fund manager
should have a good performance,
because a portfolio
investor will first identify the
instrument that qualify for investment
in their portfolio, that
is those instruments that have
very good fundamentals.
“The selectiveness of investors
in picking instruments into
their portfolio is such that any
good portfolio or fund manager
should ordinarily outperform
the market index, because
their choices will largely be on
the good performers,” Chukwu
said.
On the way to go for fund
managers in 2019, Abimbola
said “for equities, due to the fragility
of the economic recovery
and external sector pressures
styming portfolio capital flows,
investors will likely continue to
prefer value stocks with strong
fundamentals and stable cash
flow over cheaply priced speculative
stocks.”
Data by the stats bureau
revealed that Nigeria’s economic
expansion remained
sluggish in Q3, as it was below
analysts’ expectation at 1.81
percent growth rate from 1.50
percent recorded for the previous
quarter.
In 2018, Nigeria equities lost
18 percent as foreign capital
fled emerging markets on the
back of rising interest rates in
the United States and slower
global growth concerns.
“Unless we have exciting
IPOs like MTN’s during the
course of the year, we might
have another boring year on the
NSE,” Raji mentioned.
A further analysis of the asset
classes revealed that the performance
of the fixed income
funds was less impressive compared
to the bond funds. However,
the fixed income asset
class was very competitive in
2018. In spite of the tussle, SFS
Fixed Income Fund, managed
by SFS Capital Nigeria Limited,
emerged the best performer
in the class, recording 12.84
percent growth in return from
N1.48 per unit to N1.67 per unit
as at November 2nd.
Just as the names implies,
the performance of mixed
funds in the year under review
reported mixed returns; losses
and unchanged prices. Coronation
Balanced Fund, under
the management of Coronation
Asset Management, gained the
most in 2018; this is after posting
12.09 percent return to hit
N1.20 per unit.
Ayo Akinwunmi, Head of Research
at FSDH Merchant Bank
said the investment strategy
and the investment time of the
fund manager are important
determinants of their return.
“The ability of the fund manager
to select stocks of investment
instrument is an important
factor in determining the
return on that fund. Some fund
managers are aggressive while
some are a little bit conservative,”
Akinwunmi said.
Ethical funds did not have
a great year as performance of
funds was generally poor just
like the equity based funds.
All funds in this asset class declined
in 2018 but ARM Ethical
Fund, a fund managed by Asset
& Resources Management
Company Limited, posted the
lowest lost, making the fund
the best performer for the year.
The fund lost marginally by 0.67
percent to N28.20 per unit from
N28.39 per unit it opened with
at the beginning of the year.
“Although stocks are cheap
with market valuation multiples
at multi year lows and dividend
yield at a record high, investor
sentiment is likely to remain
weak in the short term due to
elevated domestic and external
sector risks,” Abimbola said.
From a high position of third
best performing market in 2017
with 42 percent rally, the Nigerian
stock market dropped
17.47 percent in 2018 and 0.43
percent as at the close for the
week Friday, 04 January 2019,
pushing year to date return to
-2.52 percent.